Tuesday, September 29, 2015

Public Service Commission staff suggests surcharge for American Water

Public Service Commission staff suggests surcharge for American Water

By Andrew Brown, Business Reporter
Monday, September 28, 2015

As public hearings get set to begin for West Virginia American Water’s pending rate increase, various groups have asked the state Public Service Commission for smaller increases and alternative funding options.
Last Friday, the PSC staff, the PSC’s Consumer Advocate Division, Advocates for a Safe Water System and several local government agencies filed testimony in response to the company’s request for a 28 percent rate increase that would increase the average residential customers bill by more than $11 per month, or $139 per year.
Throughout the testimony, each group discussed American Water’s replacement of water mains and several offered up alternative rate calculations for the company, which has come under pressure following the chemical contamination of people’s drinking water in January 2014.
In response to the company’s request for $35.4 million more in revenue annually, the Consumer Advocate Division suggested that the Public Service Commission approve an increase of no more than $1.8 million annually.
In comparison, the PSC staff recommended an increase of $12.1 million — 9.68 percent — and suggested that the commissioners approve a new rate mechanism that would allow American Water to pay for water main replacements through a separate surcharge assessed to customers.
In advocating for that surcharge, Terry Eads testified that the current rate structure may not encourage the company’s shareholders to invest the adequate amount of money into the water system, which documents show is aging quicker than the company can replace lines.
According to PSC documents, American Water’s system continues to lose around 26.9 percent of the water it treats before it gets to customers, nearly two times the 15 percent standard that the PSC set. Documents have also shown that it would take nearly 384 years to replace all of the mains in its water system.
And in response to questioning, American Water officials have said the requested $35.4 million rate request was “not expected to significantly reduce” that life cycle.
Laura Jordan, spokeswoman for West Virginia American Water, said that the company would submit follow-up testimony by Oct. 15.
In his testimony, Eads suggested the need for pipeline replacement was the reason the PSC staff was recommending American Water be allowed to assess a surcharge that will be put towards upgrading the company’s system.
“While public opinion of this rate proceeding indicates customer’s concerns with increasing rates, it also indicates concern with increasing incidents of water leaks and main breaks,” Eads testified. “These service-related issues impact the quality and reliability of water service which is critically important to customers.”
If approved by the commission, the proposed surcharge would allow American Water to submit a comprehensive plan that outlines several years of main replacements and trues up the amount of money received by customers every year.
According to Eads, the plan was based on other surcharges that have been approved by the PSC and the West Virginia Legislature recently for things like natural gas pipeline replacements and tree trimming along electric power lines.
While the CAD and Advocates for a Safe Water System are still reviewing the staff’s proposal and will have time to respond, officials with those two groups have suggested that a surcharge could be something worthy of consideration.
“It’s clear to everyone that the water company has very serious infrastructure issues and we need to find a way to address them,” said Jackie Roberts, the CAD director.
In other PSC cases dealing with surcharges assessed by electric and gas utilities, Roberts and the CAD have come down in opposition to those separate rate cases. Roberts said she and the CAD staff would be reviewing the surcharge proposal and would submit a response in the next two weeks.
Cathy Kunkel, a member of the Advocates for a Safe Water System’s steering committee, said she saw the surcharge as fitting with her groups effort to bring recognition to the way American Water invests money in its system.
“It could be a good thing in recognizing the company is falling behind in main replacement,” Kunkel said, adding that a surcharge specifically for main replacement could help prioritize spending on infrastructure replacement. “It’s certainly worth considering.”
In its testimony, the Advocates for a Safe Water System requested that the PSC perform a management audit that focuses on investigating the company’s priorities in capital investment projects.
While the citizen group, which was established after the Freedom Industries spill in 2014, has pushed for a public takeover of the water system, Kunkel said they are also pushing for greater commission oversight of how American Water decides where to invest. She said several parties in the ongoing rate case have raised that exact issue.
“It is going to be an important part of what the commission is going to have to figure out,” she said.
Reach Andrew Brown at andrew.brown@wvgazette.com, 304-348-4814, or follow @Andy_Ed_Brown on Twitter.

http://www.wvgazettemail.com/article/20150928/GZ01/150929478/1419

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